Forex Scams: Popular Incidents, Types (2024)

The Commodity Futures Trading Commission (CFTC), an independent agency of the US Government, witnessed a sharp rise in forex trading scams. According to a report by the Federal Trade Commission (FTC), over USD 117 million was reported lost in 2020 due to Forex-related scams. These are trading schemes used to deceive and rob traders by convincing them that they can make high profits by trading in the foreign exchange market. The foreign exchange (Forex) market indeed holds onto such frauds to earn potential profits.

Understanding the nature of these scams and recognising their types is important to protect yourself from such scams. Let’s discuss the same in the blog to safeguard oneself from falling prey to forex scams.

Also Read: If you are planning to pursue higher studies in the US, learn about How to Manage Money in the US. This detailed blog talks about the Banks in the US, ATMs, cards and currency exchange.

What are Forex Scams?

Forex scams are fraudulent activities that are designed to cheat traders, investors and other potential customers into investing their money through deceptive schemes. It also preys on currency exchange customers by offering them the ‘best deals’ and ‘special offers’. All forex scammers have a common purpose of stealing money from unsuspecting forex traders.

It includes buying and selling products that are not as per what was advertised, setting up fake websites and pretending big-name brokers to steal money and a list of other unethical methods of robbing investors of their money.

Also Read: Check out the Best Ways to Exchange Currency without losing your money.

Why do Forex Scams Happen?

The foreign exchange market is one of the largest financial markets in the world. It trades over $6 trillion daily globally. This means that they have an immense scope for making profits, even though risks are associated with it.

The forex market is also decentralized, meaning that there is no centralised physical location for investors to buy/sell their foreign currencies. It implies that there is no single entity regulating the forex market. Instead, different authorities and regulatories govern it in different regions.

Due to the lack of regulations and technological advancement, it provides leverage to forex scammers to defraud and attract potential investors.

Some Popular Forex Scams

The US Commodity Futures Trading Commission, which regulates forex scams in the US reported that between 2001 and 2007, about 26,000 people lost USD 460 million in foreign forex trade. Also, Nigeria has topped the list for forex fraud since 2012. Let’s have a look at some popular Forex Scams-

Danny Forex Trading Scam

According to EarnForex, the Danny Forex Trading scam involved a fraudulent individual or entity offering guaranteed high returns through Forex trading. He would offer victims a USD 1000 forex training course. He promised them to use their money for trading education in return were promised substantial profits. But, everyone ended up losing their investments as the trader disappeared or failed to deliver on the promised returns.

Gallagher Scam in Florida, US

According to the US Department of Justice, The Gallagher scam in Florida involved fraudulent Forex investment schemes. Investors were lured into investing in Forex markets with promises of high returns. However, the scammers misappropriated funds, leading to significant losses for the investors. They defrauded USD 30 million but were eventually caught and pleaded guilty.

Black Diamond Capital Solutions Forex Scam

The Black Diamond Capital Solutions scam revolved around an entity promising significant returns through Forex investments. This scam led to financial losses for investors who trusted the company’s promises but ultimately didn’t receive the expected returns.

Also Read: Every study abroad student must know about how to navigate currency exchange risks. Check out our blog to learn about management tips in detail.

Types of Forex Scams

Forex scammers might pretend as Forex brokers and offer their lucrative deals of making profits. While some are pressured to invest in ‘special offer schemes’ or products, others manipulate trades and spread misinformation on forex trading. Thus, there are different types of scams taking place all around the world.Here are some of the top types of forex scams discussed below-

Broker Scams

In such types, unethical brokers manipulate trades, spread misinformation, or refuse withdrawals. This deprives the investor of their rightful profits. Such brokers are unregulated or lightly regulated by being at places that just require a business license or some kind of fee. They are not regulated by any governing body and just lie about where they are headquartered, registered, or licensed.

For example: The FCA (Financial Conduct Authority, UK) reported that Unicorn FX was operating in the UK without proper authorisation.

Signal Seller Scams

Signal Sellers are fake entities that have an online presence. They pretend to be companies or individuals who can help people in trading. Most of them wait for you to lend them money on your behalf considering their investment expertise. But, this often results in losses as they disappear with the money given to them.

Many act like ‘Forex trade consultants’ and guarantee profits by recommending to investors when and where to bet with their charts agendas. They will recommend you by suggesting the perfect time for perfect currency timings and charge a ‘consultation fee’ based on the number of times you make a deal with them.

Ponzi and Pyramid Schemes

Such schemes include fraudulent schemes that offer High Yield Investment Programs (HYIPs) by recruiting new investors. They operate funds where capital is gathered to invest on behalf of investors. Such investors fall prey to Ponzi schemes because scammers start paying returns to the initial investors. This attracts a pool of other resources to invest their money. The fraudsters recycle the money obtained from initial investors to pay the new contributors.

Once enough funds are collected from the investors, they stop the payments and run away. This is how the cycle collapses, leaving investors with huge losses.

• According to the SEC (Securities and Exchange Commission), the Charles Ponzi scam is an infamous scam recorded in history. Based on his name, this scheme was named. In the early 20th century, he ran a fraudulent investment scheme promising high returns. He lured investors by offering profits from arbitrage opportunities. However, instead of investing the money, he used new investors’ funds to pay earlier investors, leading to the collapse of the scheme. He defrauded approximately $20 million.

Trading Robots Scam

In trading robot scams, automated systems claim to trade on behalf of investors with accuracy. But, in reality, they are designed to drain funds. Generally, forex robots can be examined and tested by an impartial third-party agency to test their working. Scammers create fake software that is capable of making transactions similar to the original one Transactions in their software cause investors to lose their money.

Also Read: If you are a student having queries on currency exchange, check out the FAQs on Currency Exchange for students.

Understanding Forex Scams for International Students

It is important to know about Forex Scams as an international student. You must be aware of the trading schemes and scams that are used by scammers to target unsuspecting victims. To save yourself from forex scams as a student, carrying the best forex cards for students is the ideal way to deal with hassle-free currency exchanges.

Know that if you are promised guaranteed high returns with little risk, you are potentially being scammed. Other signs that can help you identify if it is a scam are if the platforms require a large upfront deposit or use high-pressure tactics to rush you into a decision. They might also offer you an automated trading system claiming that it will help with forex forecasting and currency movements. Be wary of any of these tactics being used.

It is crucial to know the forex tips for international students. You must thoroughly research the market and potential brokers before investing. Make sure to verify with the NFA and CFCT to understand the company’s registration. Be aware of the flashy websites promising easy money. Also, avoid any investment that demands money to be sent via wire transfers or gift cards.

If you believe you have been the victim of a forex scam, take these steps:

• Report the incident to your university’s international office or mentor
• Contact the relevant authorities in the country where the scam occurred.
• In India, you can contact the Securities and Exchange Board of India (SEBI) and the local police.
• In the US, you can report the fraud to the Homeland Security Investigations Tip Line at 866-DHS-2-ICE.
• In the UK, you can report it to Action Fraud by calling 0300 123 2040 or using their online tool.

FAQs on Forex Scams

This was all about Forex Scams and their most popular types. Multiple forex scams have been recorded worldwide. It is important to understand and have a fair knowledge of the Forex market before investing in any currency. Do not fall prey to low-risk investments offering huge profits. Beware of forex scammers and be a wise investor.

To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.

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